After encountering strong headwinds last week, precious metals are making moves higher on Monday, helping to boost gold and silver ETFs, but does one metal have a brighter future?
Gold and silver commenced the week up 2.5% and 5.75% on the day, respectively. The gold-silver ratio is now below 73, which is an indication that silver is gaining on gold, according to Commerzbank.
“The fact that the gold/silver ratio is at 73 reveals that silver is now only marginally undervalued as compared with gold,” Commerzbank analyst Carsten Fritsch writes.
While investors continue to see the metals as safe havens amid the potential chaos that could break loose in the coming months, one of the main forces behind silver’s robust move higher is also ETF inflows, according to the analyst.
“Unlike gold, silver ETFs have been registering robust inflows in recent days. ETF investors apparently viewed the significantly lower silver price in the interim as a buying opportunity,” Fritsch explains.
However, while silver is gaining a significant amount of traction in the ETF space, big brother gold is seeing less ETF demand. “Interest among ETF investors has been cooling noticeably for a good week now. Friday saw the sixth consecutive day of ETF outflows – the last time this happened was in mid-March. The outflows are attributable almost entirely to the SPDR Gold Trust, which is used primarily by institutional investors,” says Fritsch.
Other analysts are also supportive of silver over gold.
“The sharp pullback in precious metals last week helped to weed out excess positioning from gold futures. Indeed, positioning data suggests that money managers substantially liquidated their gold futures length amid the pullback, placing the latest estimate of a position size in line with expectations given the number of traders long,” TD Securities strategists write. “Silver continues to hold a substantially cleaner positioning slate, which mitigates this risk for the white metal.”
ETF investors looking to get in on the silver action can look to funds like the iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares ETF (SIVR), two of the largest ETFs backed by holdings of physical silver. Meanwhile, for those investors looking for leverage, the VelocityShares 3x Long Silver ETN Linked to the S&P GSCI Silver Index ER (NasdaqGM: USLV) and the ProShares Ultra Silver (NYSEArca: AGQ) are something to consider.
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